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In this episode of the Government Insights podcast, host Kait Borsay discusses with her guests key geopolitical developments and what they mean for government leaders.
The supercycle of global elections means an unprecedented level of electoral, regulatory and policy uncertainty, with long-term implications for industrial strategies, climate policies and ongoing military conflicts. Government leaders are likely to have economic policy at the top of their agendas – with a focus on promoting national security. For this episode, we are joined by Oliver Jones, EY Global Geostrategy Leader, and Courtney Rickert McCaffrey, the EY Global Geostrategy Insights Leader. Together, they unravel the complexities of today's geopolitical environment and offer strategic insights to inform government leaders on what actions they need to take.
Governments are takers and givers. They shape geopolitics with their policies and actions, yet they are also affected by it in terms of policy responses and operational ability.
Increasing volatility and competition in geopolitics is leading governments to de-risk by reducing global dependencies and focusing on national security. Governments can leverage these geopolitical trends to attract foreign direct investment.
Governments must take a systematic approach and adopt analytical strategies that balance long-term benefits, security and costs in response to global shifts.
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Government Insights from EY-Parthenon.
Kait Borsay
Hello and welcome to Government Insights, a new EY-Parthenon podcast series for government managers around the world. I'm your host, Kait Borsay, and we'll be looking at how governments can transform to strengthen services for their citizens.
In this episode, our topic is how the volatile geopolitical environment is impacting government. Joining us to share their insight and opinion on this subject are Oly Jones, EY Global Geostrategy Leader, Partner at EY Global. Hello, Oly.
Oly Jones
Hi, Kait. Good to be here.
Borsay
A warm welcome to you. And Courtney Rickert McCaffrey, EY Global Geostrategy Insights Leader, Ernst & Young LLP. Hello, Courtney.
Courtney Rickert McCaffrey
Hi Kait. Thanks for having me.
Borsay
It's great to have you both with us. Courtney, let's start with you and the perception really that geopolitical risk, well it appears to have risen to historic highs. Set the scene for us in terms of the outlook for 2024.
Courtney
So at sort of a high level for 2024, we really see two key themes defining the geostrategic environment. So those are multipolarity and de risking. So in terms of multipolarity, this is really this trend that's persisting this year of geopolitics becoming more volatile and geopolitical power dispersing to more countries and more actors around the world.
So what that means is that it's creating a more volatile environment in which governments have to operate in terms of both their foreign and domestic policies.
What it's also doing is sort of reinforcing existing economic diversification trends and the importance of supply chain resiliency. So the other trend is related to that, it's de risking.
So again, this builds on what we've been seeing in recent years around governments continuing to reengage in or expand their reliance on industrial policies. So they're really coupling economic policy with foreign or national security policies in an attempt to reduce global dependencies and really prioritise national security.
Borsay
Oly, over to you. How will this geopolitical landscape create both challenges and opportunities for governments around the world?
Jones
Yeah, the really interesting thing for governments is that they are both the shaper of the geopolitical environment, but they also are a take up of the geopolitical environment. And so what do I mean by that, it's their policies and their actions that are leading to these changes in the geopolitical environment that Courtney was just talking through.
But at the same time as organisations and as individual countries and blocks of countries, they are shaped by, and have to operate within this new geopolitical environment. And so fairly uniquely, they're in this sort of both positions. And that means there are a different set of both challenges and opportunities compared to, say, the private sector.
The other interesting thing about governments is it affects them in two ways. The first way is that it affects them as a kind of policy maker. They have to respond at a policy level with policies that help their own economies to thrive in an increasingly competitive world. That might be subsidies to promote more homegrown industries, perhaps in the energy transition, supply chain, or whatever it might be.
But they are also affected as operators. And so if you're running a big health service, a big defence system, a big payment system, whatever you might be running as government, you're also behaving in a sense, just like any other organisation, and you're subject to the kind of the challenges and the opportunities that arise because of these geopolitical changes.
One of the most obvious being that governments are a very obvious target for cyber security breaches and so on and so forth. And so governments have to both be policy makers and they have to respond and operate their own organisation as their own businesses, if you like, in this new world.
And so those are two really interesting dimensions in which kind of governments are different to sort of other organisations that we would work with.
Borsay
Are you able to give us some examples, Courtney, perhaps recent examples of what you're looking out for, particularly in 2024, just to sort of help us paint the picture here.
Courtney
Yeah, absolutely. I think it's really notable that a significant number of governments around the world face elections this year as part of what we're calling the global elections super cycle.
So that has a variety of implications for policymakers. On the one hand, elections tend to slow down the policy making agenda in a lot of countries, as government officials, kind of focus on the election and trying to win election. And at the same time, you know, in terms of sort of geopolitics, we're seeing many countries election systems may be at risk of foreign interference, due to cyber-attacks or misinformation campaigns or other things like that.
Maybe one other I point to is that theme of multipolarity that I mentioned, really creates challenges in global policy coordination and negotiations. So that really elevates the level of uncertainty and potentially the severity of any transnational crises that may emerge.
So a couple areas that aren't a crisis but a couple of areas of global policy coordination that we're following closely are around geopolitics of the oceans. So multilateral engagement around managing fish stocks, managing the mining of critical minerals, safeguarding internet cables, things like that.
And then relatedly, the competition for commodities more broadly in terms of critical minerals, energy, water and other critical commodities for today's economy.
Borsay
And what are your thoughts on government’s exposure to risk and the opportunities there that also comes with that?
Courtney
Yeah. I mean there are certainly both risks and opportunities as Oly mentioned. Maybe one example I point to just to highlight that is around artificial intelligence or AI.
So we're seeing this is as a really complicated area for policymakers. On the one hand, they have an opportunity to design regulations and policies that really foster innovation in their economies. Really kickstart some innovation and economic activity in new sectors and new productivity enhancements perhaps. But on the risk side or on the downside, you know, there are some potential concerns about how AI will impact societies and economies more broadly, as well as, of course, the kind of geopolitical competition around AI.
So that's just one example of how governments are trying to balance the risks and opportunities at the same time.
Borsay
Oly, how can governments then identify the right strategies to respond to the challenges of a volatile geopolitical environment?
Jones
Yeah, that's a good question. And I think the crucial thing is that it's a question with a really important kind of analytical and structural answer. Let me identify four things that I would say. The first one is that the governments need to be systematic when they do this. So just as we would say with the private sector, this isn't something that should be off to the side, should be kind of a qualitative thing based on our kind of gut feel of the kind of vibe of globalisation. It's something that you should really put some process and some systems around. And Courtney and I and our team often talk about scan, focus and act.
Scan the external environment, focus on how it impacts your own organisation and then carefully act to address the risk or to benefit from the opportunity that presents itself. And so first one is you've got to be systematic in how you do it.
The second thing we would say is that you have to take a long-term view. So I think it's very easy at the moment because there's so much going on in the geopolitical space to be really buffeted by events and to be kind of chasing the next crisis or just responding reactively to the next kind of crisis, the next problem. And of course, you have to keep on doing that. But more fundamentally what we say is, you have to be long term.
Where is globalisation? Where is international trade? Where is economic competition? Where is that heading over a five year time scale? What do all these individual events add up to in terms of a medium or long-term thing? And then in terms of how you plan your own response as a government, plan your response to what your vision is of the five year view rather than the 2 month view.
The third point is you must be analytical. So don't just keep this at the qualitative phase, but you can actually analyse what's going on. You can put numbers around trends, around trade, and those kind of things. And that's important because we hear a lot about nearshoring and changes in international trade patterns. If you look at the data, the stories are very subtle and very nuanced. They're not this whole scale sort of deglobalization. They're much more subtle. So it's really important not to overreact and to be really analytical about what's going on to use the data.
And now I think the last thing I would say, and this connects back to some of the things that Courtney has been saying is that your policy reaction to geopolitical must be created in the same way that any other policy you would do, which is what are the benefits and what are the costs and how do they trade off.
And at the moment, we don't necessarily see loads of that. As people look to do things like nearshoring or to a bring industry back home, people are looking at the benefits from that, which is for sure, security, environmental, other kind of benefits and employments benefit. But they are also looking at the cost of doing that in terms of increasing the cost of goods, increasing the cost of living as well.
And so it's really important that policy that is developed in response to geopolitical change, geopolitical turmoil has the same rigour of analysis around it. A cost benefit analysis that we talk about in lots of other bits of government, that same analysis should be applied to policies that are developed in response to geopolitics.
Borsay
Courtney, let's come to you and ask whether there are examples of how governments have harnessed the opportunities?
Courtney
The two examples I would point to. One is around that de risking theme. So there's a couple of key ways in which that's playing out. One is around economic security policies and industrial policies, as I mentioned, and the other is around this concept of the diversification agenda.
So because of a lot of these policies that we're seeing being put in place, governments are engaging in competition with other countries to attract private sector investment. So you know, we've seen some governments sort of use incentives to attract more FDI and kind of seize that opportunity associated with not only governments de risking, but also the private sector seeking to de risk their own supply chains and their own production.
So you know Mexico and India for instance have attracted significantly more FDI in recent years. And Mexico is now the largest trading partner in terms of imports for the US. So that's one example of how governments are kind of seizing some of the opportunities associated with these policy shifts.
The other one I would point to is quite different, but it's around the governments that are harnessing the opportunities associated with what we're calling the climate adaptation imperative. So this is the idea that, you know, even as policymakers around the world are still trying to mitigate climate change through emissions reduction, at the same time we're seeing more and more governments start to adapt to the current physical risks of climate change that are already happening in their economies and in their countries.
So you know, we're seeing some governments put in place new standards. New investments to improve the resilience of buildings to environmental hazards. And we're also seeing an increasing focus on nature-based solutions to reduce the impact of extreme weather. So for instance, this can be things like a cooling pavement in cities like Tokyo, for instance, has put that into place or there are even new sort of innovative building designs and new uses of trees and other nature-based solutions to cool urban areas. And that's something that Singapore is really out in front of right now. So those are just a couple of examples I would point to.
Borsay
Oly, when it comes to best practise and you know making better informed decisions, what lessons have been learned in the public sector about being responsive and resilient in the face of geopolitical instability?
Jones
The first thing I would say is you asked about being responsive and I think one of the features of geopolitics today is that it moves really quickly. And so if you take something like trade policy, if you went back 20 years, trade policy for something that moved over the course of many years, a World Trade Organisation round would take four or five, six years for incremental changes to trade policy on the environment.
These days, things happen in 24 hours. They happen in a tweet from a president, or a Prime Minister whoever it might be, and they're enacted that night. And so the world has fundamentally changed in terms of the speed of response. And so you have to move really quickly.
Now the second thing I would say that in terms of both being responsive and resilient is that public trust, you know, we see throughout the world in terms of the data at the polls is at a real low, both in terms of their own governments, but also in terms of between countries as well, driven by this kind of geopolitical environment.
It's also really important that the governments take their people and their citizens and their voters along with them when they develop policy and so on. And there are no there are no magic bullets here, right, it's a very long-term game.
The final really important lesson learnt here is that it's not an island and you have to develop your policy around geopolitics, cognizant of all these other really powerful kind of currents that are affecting you.
And that leads to both challenges where all these different trends are pushing you in different directions, but occasionally they come together and create a real opportunity. And Courtney, you know, you use a good example of this in the energy sector, where particularly say in Europe in the last two or three years, the geopolitical need to reduce reliance on energy supplies from certain suppliers, has been in tune with an environmental desire to reduce exposure to oil and gas and to invest in renewable energy, which has also been in tune with the desire to industrialise and develop capabilities in home countries. And that has meant that the push toward renewables has actually ticked three huge big policy boxes at the same time, which is a classic example of the opportunity here.
Borsay
That's super interesting. And Courtney, what are you hearing about how the private sector are going about identifying the right strategies to manage geopolitical uncertainty?
Courtney
Yeah, that's a great question. I mean, I think I would point to some of the same strategies and methods that Oly mentioned earlier for the public sector. So really when we're talking with private sector leaders, we're hearing two main strategies from them at this point.
So one is around just more information gathering. So that scan function that Oly spoke about earlier.
So we're seeing a lot more concerted efforts by the private sector to really understand the shifts in the geopolitical environment, track them much more closely, really drawing on a wider array of both internal and external sources to do that scan. And again that that includes both qualitative and quantitative information as Oly mentioned.
And then the second big trend that we're seeing in terms of private sector strategies to manage all this uncertainty is around scenario planning. So we're seeing lots of interest in scenario planning and scenario analysis from C-suites and Boards and risk teams and strategy teams. So really across the board in the private sector.
So you know, we've helped clients think through a variety of different types of scenarios. I would group them into two main categories. One is around scenarios around a specific kind of acute geopolitical crisis. So whatever it may be that the company is concerned about.
So those types of scenario engagements are really around pre-positioning for resilience, maybe creating crisis management preparation and responses and playbooks. The other type that we've been seeing more interest in is scenarios around sort of, long term trends for the future of globalisation, or you know the future of the geopolitical environment. And that can form sort of longer term planning in the private sector around supply chain networks and just corporate strategy as well.
Borsay
Let's end with you Oly, and your message then for government policymakers about how to apply capabilities that deal with geopolitical risk.
Jones
Yeah, and firstly I'd go back to this word, systematic, which is you have to apply your capabilities systematically to the problems and the challenges that you face. And I think that's the first thing I would say. It must be a systematic process.
The second thing I would say is that there's both challenges and opportunities here. And I think if you see it just as a threat, just a set of risks, it gets put in a box and it doesn't get treated in the same way that it should. So the question you should ask yourself is, how do I thrive in this new environment? What are the challenges? What are the threats, for sure? What are the opportunities too.
So be systematic and ask yourself a balanced question about, how do I thrive in this environment. Those are the two parting messages I would give.
Borsay
Well, it seems like a good point to end on. Thank you so much both of you for such a fascinating conversation. A real insight into all the different mechanisms behind the scenes, really and what you have to consider.
Oly, thank you to you.
Jones
Thanks so much, Kait, it was great to be here.
Borsay
And Courtney, thanks to you.
Courtney
Thanks, Kait.
Borsay
Well, do join us again soon when we'll continue to look at how governments can transform to strengthen services for their citizens. And please subscribe to this series so you won't miss an episode.
From me, Kait Borsay, thanks for listening and bye for now.
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Government Insights, back soon.
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Presenters
Kait Borsay
Journalist, author, TV presenter, Radio moderator at Times Radio
